4. Using the stock price and return data in Exhibits 5 and 6, estimate the CAPM beta. Given that Charles Schwab Corp & Quick & Reilly have the most sufficient data for their historical stock prices, we decided to estimate the CAPM beta by using the average of two firms as a comparable to spread out the bias. Step 1 : Calculate equity beta and unlever it to get asset beta for CSC From the data in Exhibit 5, we get - at = 3.345% and So= 11.513% (refer to Appendix for calculation) Using the value weighted market return in Exhibit 6, we have Cov(rec, [me) = 0.0014087, Var(max) = 0.0006133, therefore, Charles Schwab Corp's equity beta is Pequity Bequity =6 Cov(rests [met)/ Var([mke) = 2.3 From Exhibit 4, we know for Charles Schwab , its debt to market value ratio is D/(E+D) = 0.08, so Basset=(1- 0.08)- Pequity = 2.116 (Beek: is assumed to be 0 given the small debt to market value ratio) Step 2: Calculate equity beta and unlever it to asset beta for Quick & Reilly Repeat the above calculation again, we get Cov(quick, [mix) = 0.0014, therefore Quick & Reilly 's equity beta is Bequity = Cov(quicks [mea)/ Var([mix) = 2.2. Pequity = P 3quick because Quick & Reilly has no debt. Step 3: Average these two asset beta The following table summarizes the results from our calculation: Company Equity Beta D/(D+E) E/(D+E) Asset Beta